Standard moves to cut sales abuses

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Standard Life, the Scottish insurance company, is planning to restructure the commission paid to sales forces by linking it to the length of time clients keep their policies going.

The company's move, which could soon become the norm throughout the industry, spells the beginning of the end of the traditional way of selling insurance products. Flat-rate commissions have been an incentive to sell policies to unsuitable clients.

Financial advisers and company sales forces will no longer be paid according to the number of policies they sell but on the basis of what insurers call persistency rates.

Potential policyholders also stand to gain by not having to deal with relentless attempts to make them buy insurance products. Many of those pressured surrender their policies early.

The proposals have been welcomed by the Association of British Insurers. A spokeswoman said: "It is in everyone's interests that policies are sold in such a way that they are likely to be kept in place for a long time. Anything that helps in that process has got to be welcomed." Garry Heath, chief executive of the IFA Association, the trade body for independent financial advisers, also gave them his support. "We have always been in favour of remunerating IFAs more by persistency rather than up-front commission. Advisers prefer to receive renewal fees for servicing the policies they sell and if this is a move in that direction then it is welcome," he said.

Until now, advisers and sales forces that do not charge their clients fees have been paid commissions on policies sold.

Although there is provision for commissions to be staggered over a period of up to three years while a policy is kept going, many salespeople insist on receiving cash up-front. If a policy is surrendered before then, the insurer claws back part of the commission. Standard's plan would involve financial advisers receiving progressively more money the longer a policyholder pays into one of its plans.

Norman Arthur, the company's assistant general manager for sales, said part of the reason for Standard Life's decision was based on the need to keep policyholders rather than lose them within a few years. The company hopes to have the new commission structure in place in the next 12 months.

Mr Arthur said: "Business that sticks is better than business which we cannot retain. Although our retention levels are already very good we want to keep them as high as we can.

"We will be moving away from commission levels being geared simply to volumes of business. Costs are already high in the industry and this is one way of reducing them."

But he stressed that persistency rates were only one of several factors that would determine commission payments, including the use of new technology as part of the sales process.

Standard Life will not penalise those IFAs who find that their clients are forced to surrender policies for reasons beyond their control, such as divorce or redundancies.

"Until now our internal systems have been able to run checks on business volumes from individual IFAs," he said. "We will be setting up new systems to monitor persistency levels before we introduce the new payment structure."